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NIL Return: What is a NIL Return? Who should file a NIL Return? Understanding the Requirements and Benefits of NIL Return
Should you file the Income Tax Return (ITR) if your income is below the basic exemption limit? While filing the ITR is mandatory if the income exceeds the basic exemption limit, it is also important to file an ITR even if the individual earns no income or earns an income less than the basic exemption limit. Moreover, the basic exemption limit depends on the type of tax regime opted by the individual. This article explains what is NIL Return? Who should file the same? All other aspects related to the NIL Return are also explained.
What is a NIL Return?
A NIL Return is one in which the taxpayer has no income tax liability. This could be because the taxpayer’s income is less than the basic exemption limit or because the taxpayer’s net total income is less than the basic exemption limit after claiming specified deductions and exemptions. For example: there may be cases where the tax liability is zero after receiving the rebate under Section 87A. In such cases, the filed return will be referred to as ‘NIL ITR’.
Who should file a NIL Return?
Individuals who are required to provide proof of their income but whose income is less than the exemption limit may file a NIL Return and provide the proof of filing wherever required.
Benefits of filing a NIL Return
Following are the benefits of filing a NIL Return:
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ITR serves as a proof of income of the individual.
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Proof of income is required while making an application for a passport or VISA.
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Moreover, banks require ITR for a minimum of 3-4 years while sanctioning the loan to an individual.
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If the bank has deducted Tax at Source (TDS) on the interest deposits held with it, an individual can request a tax refund by filing the NIL ITR even if they have no other income.
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Often freelancers or consultants receive their payments net of TDS despite not falling into the tax bracket. The tax refund can be claimed by them through filing the NIL ITR.
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Moreover, filing an ITR allows you to carry forward any losses under capital gains even if there is no other income.
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If an individual owns foreign assets, an ITR is to be filed whether or not the income falls in the tax bracket.
Steps to file a NIL Return
Filing a NIL ITR is similar to filing any other type of ITR. However, keeping the information of Aadhaar, PAN, salary information, TDS details, bank details, and Form 16 easily available. Following are the steps for filing the NIL Return:
Step 1:
Go to Income Tax Department website at https://www.incometax.gov.in/iec/foportal/
Step 2:
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Sign up at the income tax portal. If you already have an account, log in with your registered id and password.
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Once you have logged in the following steps should be followed.
Step 3:
Choose the appropriate e-filing option (ITR1, ITR2, ITR3).
Step 4:
Fill the necessary details such as name, address, Bank, PAN, aadhaar, and enter ‘0’ in the income section, if there is no income to report.
Step 5:
If Form 16 is received from the employer, the income and the details of investment will be pre-filled.
Step 6:
If TDS is deducted, it will be reflected in the ITR. Moreover, Form 26AS should also be validated or the Annual Information Statement (AIS).
Step 7:
Since it is a NIL Return, the income tax liability will be zero and it will be auto-computed and reflected in the ITR.
Step 8:
The NIL Return should be submitted after making sure there is no tax liability and all the entered information is correct.
Step 9:
After submitting the ITR, it should be e-Verified or a physical signed copy should be submitted to the Centralized Processing Centre (CPC), Bangalore.
Non-filing Consequence
Filing a NIL Return is similar to filing any other type of return. Thus, the submission deadline of the NIL ITR remains the same. However, if a NIL Return is filed voluntarily there will be no late fee under Section 234F for delay in the filing of the return. Whereas, if NIL Return is compulsorily required to file and the same has not been filed within the due date, that is, by July 31 of each assessment year, late fee under Section 234F will be levied. A late fee of INR 1,000 will be levied for the delay in the filing of NIL Return, if it is compulsorily required to be filed.
Frequently Asked Questions
Q
Even if a person is earning no income, should he still file the NIL Return?
A
NIL Returns can be filed by those individuals who do not have any income or are having income below the basic exemption limit. It is advisable to file a NIL Return if a person has no income because it will make him become tax compliant.
A
Generally ITR 1 is used for filing the NIL ITR in case of an individual. The type of ITR usually depends on the source of income and the status of the assessee whether he is an individual or a Hindu Undivided Family (HUF) or a partnership firm.
Q
Is there any time limit to file NIL Return?
A
The last date for filing the NIL Return is the same as in case of normal return. The NIL Return should be filed on or before July 31, each assessment year.
Q
What is the consequence of failure to file a NIL ITR?
A
Generally, when there is no tax liability and the return is filed by the individual voluntarily, there will be no penal consequences for failure to file NIL Return on time. That is, in such circumstances, a NIL Return can be filed without any late fee.
Q
Is the late fee also applicable in case of NIL Return?
A
Even if the taxable income is below the basic exemption limit or there is no tax liability, the late fee will be applicable while filing the NIL Return, in cases where the return filing is compulsory. As a result, the late fee of INR 1,000 will be levied while filing the belated return if NIL Returns.
Q
What are the benefits of filing a NIL Return?
A
The benefits of filing NIL Return are as follows:
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It serves as an income proof.
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It makes it easier for making loan applications with the banks.
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Some countries require filed ITR while approving VISAs.
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Tax refunds can be claimed through the filing of ITRs. Therefore, even if the income is below the basic exemption limit, filing of NIL Return will enable the individual to claim tax refunds.
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Also, return filing enables an individual to claim and carry forward the losses.
Q
Suppose an individual does not have any taxable income in India. But he holds an asset and an investment outside India. Is filing of NIL Return compulsory?
A
Yes. NIL Return is compulsory for those individuals who have financial interest or assets outside India even if their income is below the basic exemption limit. Filing of NIL Return helps to report the foreign assets and become a tax compliant assessee.
Q
Does a NIL Return always mean zero income?
A
No. A NIL Return does not always mean that the income of the individual is zero or nil. It often denotes that the income tax liability of the individual is nil, that is, the income does not exceed the basic exemption limit.
Q
Company T incorporated on December 1, 2023. There is no income from business during the F.Y. 2023-2024. Does the company have to file the ITR for the F.Y. 2023-2024?
A
Yes. The Income Tax Act mandatorily requires the company to file the ITR even if there is no income during a particular year. Therefore, a company has to file NIL ITR if there is no activity or revenue during the year.
Q
Is filing an ITR for the Limited Liability Partnership (LLP) is compulsory even if there is no revenue during the year?
A
Yes. The Income Tax Act compulsorily requires the few assessees to file the ITR even if there is no income or revenue in a particular financial year. As a result, an LLP must file a NIL ITR if there is no activity or revenue during the financial year.
Prachi Jain
Chartered Accountant
Prachi Jain is a Chartered Accountant with a passion for simplifying finance and tax-related matters through her insightful and informative blogs. With a background in finance and a deep understanding of tax regulations, Prachi has established herself as a trusted source of financial wisdom. Prachi is committed to empowering her readers with the knowledge they need to make informed financial decisions. Her expertise and dedication shine through in every blog post, helping her audience navigate the intricacies of finance and taxes with confidence. Follow Prachi Jain's blog for practical insights and guidance on managing your finances effectively.
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